Why I no longer consider economic isolation a threat

Ken Parish “points”:http://troppoarmadillo.ubersportingpundit.com/archives/004767.html to the ‘eco­nom­ic iso­la­tion’ argu­ment for FTA’s bq. Final­ly, nei­ther [John Quig­gan] nor Peter Gal­lagher men­tion the most fun­da­men­tal dri­ver of bilat­er­al trade deals and the broad­er ques­tion of increased eco­nom­ic inte­gra­tion between the US and Aus­tralia. With the appar­ent break­down in Can­cun last year of the DOHA Round of nego­ti­a­tions … Australia’s best chance of avoid­ing increas­ing trade iso­la­tion lies in pur­su­ing bilat­er­al trade deals with the largest devel­oped nations (i.e. the US and Chi­na). I’ve used this argu­ment in the past, but I’ve changed my mind. In a 1997 pam­phlet for the (now defunct) Cen­ter for Amer­i­can Stud­ies at Syd­ney Uni­ver­si­ty, I argued that there were two rea­sons that should lead us to accept the risks of an FTA ith the USA—including the risks to the coher­ence of the mul­ti­lat­er­al trad­ing system—and say ‘yes’ to the then ten­ta­tive Clin­ton Admin­is­tra­tion over­tures: # (more impor­tant) It would keep the bas­tards hon­est. There had been plen­ty of signs in 1997 that the gov­ern­ment was under pres­sure from the usu­al rent-seek­ers to allow the micro-eco­nom­ic reform agen­da in Aus­tralia to slide. And, indeed, they did so. One of the first acts of the Howard Gov­ern­ment on assum­ing pow­er had been to put up the Aus­tralian tar­iff by abol­ish­ing the sys­tem of ‘by-law’ duty reduc­tions (if you don’t know what that was … arrgh, for­get it). Lat­er, Australia’s ‘sur­vival’ of the Asian finan­cial mar­ket cri­sis was used as a sooth­ing assur­ance that we’d done just about every­thing right (already!) and there was pre­cious lit­tle more that was need­ed. I fig­ured that an FTA with the USA would stir this up a bit. And I still think it will in areas such as our over­bear­ing quar­an­tine pro­tec­tion[⇒ relat­ed sto­ry] and our obscure ‘invest­ment review’ stan­dards … although not as much as it might have. # (less impor­tant) It would res­cue us from our sta­tus as one of only two coun­tries then in the OECD that did not enjoy pref­er­en­tial access to a ‘mega-mar­ket’ (100m con­sumers). At that time, NZ was the oth­er coun­try. Then Korea became a ful­ly-fledged mem­ber of OECD and ruined a good sto­ry. I have to say that I’m no longer so con­cerned about this pos­si­bil­i­ty. Prob­a­bly the biggest rea­son for chang­ing my mind was the tar­iff sched­ule adopt­ed by Chi­na in its WTO acces­sion. Chi­na real­ly did ‘bind’ big tar­iff concessions—the result of tar­iff cuts it had start­ed mak­ing ear­li­er in the 1990s—to the point where its MFN (non-dis­crim­i­na­to­ry) rates were no high­er than, and in some cas­es much low­er than, the ASEAN exter­nal tar­iff. This, it seemed to me, meant that unless and until Chi­na had sur­round­ed itself with region­al pref­er­en­tial arrange­ments we would not real­ly be locked out of key growth mar­kets. There have recent­ly been some signs that Chi­na is cre­at­ing a region­al trade pol­i­cy but it now includes Aus­tralia. My argu­ment, in an op-ed piece in today’s Fin. Review (check back here tomor­row), is that we may soon have the first chance to nego­ti­ate a seri­ous ‘FTA’ with Chi­na. As for my 1997 rec­om­men­da­tions that Aus­tralia should pur­sue an FTA with the Unit­ed States: they were favourably reviewed in a pub­lic sem­i­nar at the time by, among oth­ers, the cur­rent Aus­tralian Ambas­sador to the WTO. But the Can­ber­ra bureau­cra­cy was less kind. In the words of one senior bureau­crat, they ‘pissed on it from a great height’. Cab­i­net accept­ed their views. Why did they change their minds so com­pre­hen­sive­ly two years lat­er? The US ‘Trade Pro­mo­tion Author­i­ty’ leg­is­la­tion? Bush-Howard ‘chem­istry’? A sense that the WTO was spin­ning its wheels (after the 1999 Seat­tle meet­ing)? We’ll know in 30 years.

Peter Gallagher

Peter Gallagher is student of piano and photography. He was formerly a senior trade official of the Australian government. For some years after leaving government, he consulted to international organizations, governments and business groups on trade and public policy.

He teaches graduate classes at the University of Adelaide on trade research methods and the role of firms in trade and growth and tweets trade (and other) stuff from @pwgallagher